Promoter-run companies pay highest salaries: Study

Size doesn't matter, it seems, where managerial remuneration is concerned. The highest salary paying companies are not necessarily the most profitable or the largest in terms of market capitalization.

| TNN | Updated: May 9, 2013, 06:19 IST

MUMBAI: Size doesn't matter, it seems, where managerial remuneration is concerned. The highest salary paying companies are not necessarily the most profitable or the largest in terms of market capitalization. Around 25% of BSE-100 companies , which are largely promoter-driven , have the highest pay packages. In fact, for familyowned businesses where multiple family members are on the board, their combined remuneration tends to be on the higher side and in one case constituted almost 70% of the total staff costs, according to a study by proxy advisory firm IIAS. The study also reveals the high variation between average employee salary and CEO pay (average of 285x and median of 85x).
While market-cap and size of operations is expected to drive overall remuneration level, the study finds that the top-paying companies in BSE-100 are much smaller in size than many of the other index constituents. An analysis of the five highest salary paying companies in BSE-100 shows that in the last few years, many of the larger firms such as RIL and L&T have been replaced by smaller ones like Divis Laboratories. Notably, most of these top-paying firms are run by promoters themselves. This is a worrisome trend, IIAS says, adding that CEO remuneration levels should be comparable , irrespective of whether the CEO represents the promoter or is a professional.

According to the study, the average annual managerial remuneration in FY12 for sensex companies was Rs 10.9 crore. For BSE-100 and BSE-500 companies , the annual remuneration ranged around Rs 6.2 crore and Rs 3.6 crore, respectively. However, these numbers do not reflect the complete picture, it adds. While on average, domestic companies seem to be displaying a sense of moderation, there is a big difference between the average and median remuneration levels, indicating that the overall aggregate is heavily skewed towards certain companies and their directors.

Increasingly, controlling shareholders have used the company to steer personal interests sacrificing the interests of the company, mostly through abusive related-party transactions and remuneration, it adds.

Says K Sudarshan, MD of executive search firm EMA Partners, "In companies where the majority control is with the promoter, there is a greater autonomy in fixing their own remuneration ; promoters may reward themselves more through dividends or commission. Most of the time, bulk of a promoter CEO's compensation is backended and is paid annually, which is not case with professionals ."

The trend has been witnessed in BSE-100 companies where there is a significant difference in the remuneration of executives in promoter-controlled firms vis-a-vis professionally run companies. For FY12, the difference is more than threefold.

The analysis shows that executives in healthcare/pharmaceutical companies are the highest paid as compared to other industries, with an average annual remuneration close to 2% of the net profit. This may partially be attributed to the fact that six out of the seven pharmaceutical companies in the index are controlled by promoter families.

It is equally important to maintain a balance between the remuneration paid to senior management and an average employee. Management experts like Peter Drucker and entrepreneurs like N R Narayana Murthy have advocated that the ratio of CEO pay to average employee remuneration be capped at 20-25 x. Though this is rarely observed globally, in India data reveals that in FY12 executives were paid a median remuneration which was 85 times that of the average employee.

The great salary divide

Highest paying cos are not necessarily most profitable or have large m-caps Pay disparity between public and private sector has widened over last few years Data indicates total remuneration paid to MDs is below prescribed limits Variation between average employee salary and CEO salary is high with an average of 285x and a median of 85x Healthcare/pharma cos give highest pay, with average annual salaries close to 2% of net profits.

more from times of india Business

All Comments ()+^ Back to Top

Characters Remaining: 3000

Continue without login

or

Login from existing account

FacebookGoogleEmail

Share on FacebookShare on Twitter

Refrain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks, name calling or inciting hatred against any community. Help us delete comments that do not follow these guidelines by marking them offensive. Let's work together to keep the conversation civil.